The restructuring concept under IDW S6 is the gold standard for assessing a company's restructuring viability. We explain its structure and contents.
Significance of IDW S6
The IDW Standard S6 of the Institut der Wirtschaftsprüfer sets out the requirements for preparing restructuring concepts. In practice, an opinion prepared in accordance with IDW S6 is the authoritative standard for assessing a company's restructuring viability. Banks, creditors and courts rely on this standard.
When Is a Restructuring Concept Required?
A restructuring concept under IDW S6 is typically required in the following situations:
- Bank negotiations: Credit institutions regularly require a restructuring opinion as the basis for deciding whether to continue their lending commitment in the case of non-performing loans
- Restructuring under StaRUG: As the basis for the restructuring plan
- Insolvency proceedings: As the basis for the insolvency plan in debtor-in-possession proceedings
- Liability issues: To document that the management acted in compliance with their duties
- Shareholder disputes: As an objective basis for strategic decisions
Core Elements of the Restructuring Concept
1. Description of the Company
First, the company is described comprehensively:
- Legal and organisational structure
- Business model and value chain
- Market and competitive environment
- Products and services
- Key customers and suppliers
- Workforce structure
2. Analysis of the Causes of the Crisis
The analysis of the causes of the crisis is the centrepiece of the opinion. It must fully and accurately identify the root causes, distinguishing between endogenous (company-internal) and exogenous (market-related) factors.
3. Assessment of the Crisis Stage
The current stage of the crisis is classified according to the crisis model described above:
- Stakeholder crisis
- Strategic crisis
- Product and sales crisis
- Earnings crisis
- Liquidity crisis
This classification is decisive for selecting the appropriate restructuring instruments and assessing restructuring viability.
4. Target Vision of the Restructured Company
The restructuring concept must paint a clear picture of what the company should look like after successful restructuring. This target vision encompasses:
- Future business model
- Market positioning
- Organisational structure
- Target financial structure
5. Restructuring Measures
The specific restructuring measures are categorised into operational and financial measures:
Operational measures:
- Strategic realignment
- Operational efficiency improvements
- Workforce measures
- Portfolio rationalisation
- Process optimisation
Financial measures:
- Capital injection
- Debt waivers
- Debt restructuring
- Shareholder loans
- Disposal of non-operating assets
6. Integrated Restructuring Plan
The quantitative substantiation of the restructuring concept is provided through an integrated financial plan comprising the following elements:
- Projected profit and loss statement: Presentation of the expected revenue and expense development
- Projected balance sheet: Presentation of the asset and capital structure
- Projected cash flow statement: Presentation of the liquidity development
The financial plan typically covers a period of three to five years and must reflect the effects of all restructuring measures.
7. Assessment of Restructuring Viability
The opinion must conclude with a clear statement on the company's restructuring viability. A company is deemed viable for restructuring if:
- The causes of the crisis can be eliminated through the planned measures
- The company is sustainably competitive in the market after implementing the measures
- Financing for the restructuring is secured
- The integrated financial plan demonstrates sustainable profitability and adequate liquidity
Quality Requirements
Independence of the Author
The author of the restructuring opinion must be professionally competent and independent. This means in particular that there must be no economic dependency on the client that could compromise objectivity.
Timeliness and Completeness
The opinion must be based on current data and cover all material aspects of the company and its crisis. Simplifications and assumptions must be disclosed transparently.
Legal Significance
A restructuring concept under IDW S6 has considerable legal significance:
- For managing directors: It documents compliance with duties and can protect against personal liability
- For creditors: It is the basis for deciding whether to continue lending, in particular as protection against claims of unconscionable creditor prejudice
- For banks: It fulfils the banking supervisory requirements (MaRisk) for managing non-performing exposures
Conclusion
A restructuring concept under IDW S6 is far more than a formal document. It is the compass for the restructuring process and the foundation for all stakeholders' confidence in the restructuring. Investing in a high-quality opinion is an investment in the future of the company.
